Step #2 – Retirement Preparedness Checklist: Insure Risks You Cannot Afford to Take

  by Jesse Anderson

One of my clients, a physician, when discussing insurance, said to me, “We’re all just one step away from the banana peel.” She would know better than most.

While it’s not particularly pleasant to think about becoming sick or needing assistance, healthcare and long-term care costs pose very real risks to your retirement nest egg. Can you afford to chance it?

Risk management is the foundation of a solid financial plan, especially in retirement. From my unique vantage point, as a financial advisor to thousands of near-retirees and as a financial radio talk show host, it is apparent that the biggest holes in your retirement puzzle is most likely managing the risk of staggering healthcare costs.

The most important items to plan and budget for are:

  • private health insurance if you are under age 65
  • Medicare and Medicare Supplement insurance if you are near or over age 65
  • a solid long-term care policy.

Before you turn in the keys to your office, you will want to look into employer-sponsored health coverage available to you as a retiree. Keep in mind that private-sector employers are not required to offer retiree health benefits.

Furthermore, if your company provides a plan, nothing in federal law prevents them from cutting or eliminating those benefits. Make sure you read the plan carefully and compare the costs with the benefits offered.

If your employer does not offer retiree healthcare benefits, you will need to turn to the non-group market for health insurance coverage. Unfortunately, the individual market can be an intricate place to navigate in search of a well-suited plan.

If you have to purchase an individual plan, you may find the premiums can be prohibitively expensive, particularly for those with a history of medical issues. I have clients who have the assets to retire choose to remain employed just for the healthcare coverage. Make sure you know the costs and that you can get coverage before you leave your employer’s plan.

Given the cost of private insurance, it’s important that you know what you need and what you don’t. Generally, there is a direct tradeoff between the cost of health insurance and the level of protection it provides. As you weigh this tradeoff, keep this in mind: you buy health insurance in case you get sick, not in case you stay healthy.

If you are retiring near or over age 65, Medicare and Medicare Supplement insurance will be your primary focus when it comes to healthcare. Although Medicare acts as a safety-net and as the primary source of health insurance for many retirees, retiree healthcare benefits or similar coverage is usually still needed to supplement Medicare.

Medicare Part A is automatically available to you at age 65, if you are taking Social Security. If you are not taking Social Security, you will need to actively enroll. You can enroll in Medicare up to three months before the month you turn 65.

Part A, which covers inpatient hospital expenses, is premium-free if you have worked forty quarters and paid Medicare taxes. If you have not worked forty quarters, you will have to pay a premium based on the number of years you have worked in Medicare-covered employment.

Medicare Part B, which covers outpatient medical services and is subject to an annual deductible, is available for a premium. The premium is based upon your household income. It is either deducted from your Social Security check or billed to you quarterly if you are not yet receiving Social Security benefits.

It is usually best to enroll in Part B at the same time that you apply for Part A; however, you may opt out of Part B coverage, say if you have a group health plan, and opt in later during various enrollment periods. Keep in mind you may incur a penalty for waiting. For more information on Medicare Part A and Part B provisions and enrollment, visit

In order to purchase Medicare Supplement insurance, also known as Medigap, you must be enrolled in both Medicare Part A and Part B. Beginning June 1, 2010, there are ten plans available. Depending on which Medigap plan you choose, you can get coverage for additional expenses Medicare doesn’t cover.

Medigap plans range from skinny to well-rounded. Premiums will vary based on the level of coverage you select. When selecting a Medigap plan, it is important to assess your ability to pay for out-of-pocket expenses along with your coverage needs. A good financial advisor can help you with this analysis.

Once you have a healthcare solution that fits in your budget and meets your needs, there is one other critically important piece of coverage to consider – long-term care insurance. Consider these statistics:

  • Americans are living longer than ever before—those surviving to age 65 can expect to live an average of 19 more years.
  • By 2030, the number of Americans aged 65 and older will more than double to 71 million older Americans, comprising roughly 20% of the U.S. population.
  • One in three Americans age 65 will need some kind of nursing home care in their lifetime.
  • Just in the past two years alone, the increase in the average cost of long-term care ranged from 5-13%, depending on the type of service.

The average cost of just two to three years of long term care could potentially exhaust the assets of many elderly Americans. Private insurance and Medicare cover none or little of the necessary costs, and Medicaid will provide coverage only after you have spent down your assets.

Long-term care insurance provides so much more than just the costs associated with illness and old age; it gives you dignity of choice in your care as well as peace of mind for your family and those responsible for overseeing your quality of life. If you are over the age of 40 and have less than $3.5 million in assets, it is time to look into a long term care policy.

Often, retirees have cash value life insurance policies they no longer need. It may be a good idea to use the built up value in those unneeded policies to fund necessary healthcare and long-term care premiums.

Don’t risk your lifetime of hard work and savings. Make sure you are properly insured in retirement and protected against rising healthcare costs and the need for long-term care. You simply can’t afford the alternative.

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